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Early aid notification would have avoided Ryanair backlash

COMMENTS by Ryanair CEO Michael O’Leary, on the recent European Commission decision condemning some of the Walloon government’s subsidies to Ryanair at Charleroi airport, make the case sound like a monumental clash between good and evil.

The reality may be much more banal. At the core of this case may lie a simple failure (or, perhaps, a refusal) to follow the EC Treaty’s rules on the prior notification of state aid.

Those rules require a member state to notify the European Commission in advance of any proposal to grant any subsidy, advantage or other benefit out of state resources when the proposed measure might affect trade between the member states and might distort competition. There is also a compulsory “standstill” period prior to clearance during which aid may not be implemented. Aid granted without Commission clearance may be challenged by both the EU executive and a beneficiary’s competitors.

The real origin of Ryanair’s problems with the Commission is not that the aid it received from the Walloon government could not be cleared; some of the most important parts of the Ryanair package in fact were. Instead, Ryanair’s problems seem to be related to a failure to observe the notification procedure. Aid that is not notified is deemed to be unlawful and, inevitably, this means that if the aid is investigated by the Commission, the government entity granting the aid or the firm benefiting from it is put on the back foot when it comes to defending the aid.

In the Ryanair case, the Commission’s investigation took place in the context of two developments which, in retrospect, may have been very significant. Crucially, these two developments occurred after Ryanair had done its deal at Charleroi.

The first development was a French court ruling in July last year that aid received by Ryanair from a French regional authority, in connection with its services at Strasbourg airport, was unlawful. Ryanair’s reaction was swift. It closed down the operations in the publicly owned Strasbourg airport and moved across the border to the privately owned Baden-Baden airport. Would the outcome of the Charleroi case have been different if Ryanair and the Walloon government had reached a compromise with the Commission prior to the Strasbourg ruling? Hard to say, but there is at least a possibility that the Commission found support in the French court’s judgment.

The second development, unforeseeable at the time of the Charleroi deal, was the degree of success Ryanair has achieved on its services from ‘Brussels South’. It seems fair to say that when the Walloon government authorized the Ryanair aid package in 2001 neither party could have had any certainty that their business would become as successful as it is today.

If the aid had been notified and reviewed at that time, that uncertainty could have played to Ryanair’s advantage. Instead, the Commission reviewed the aid in circumstances where it could see that the airline’s bet on the small, unknown airport had paid off and that the Charleroi services were successful (so successful, indeed, that they provoked Ryanair’s competitors into complaining to the Commission).

In short, the outcome in this case might have been significantly better for Ryanair if the incentives offered at Charleroi had been notified to the Commission when the deal was first negotiated.

What lessons can be learned from the Ryanair case?

Both aid beneficiaries and member states should be aware of the active approach taken by the European Commission to the enforcement of the state aid rules.

There is an increased level of sophistication among complainants in the use of the state aid rules to attack their competitors. Courts are increasingly willing to get involved in such cases and their involvement can be crucial.

Where a state aid issue arises, it is essential that the parties concerned undertake an early analysis and satisfy themselves on any doubts.

While it is the member state that is obliged to notify a state aid, it is the recipient that suffers the adverse consequences of a failure to notify.

Damian Collins is a partner in the Brussels office of Dublin-based law firm McCann FitzGerald.

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